The Securities and Exchange Board of India (SEBI) has proposed changes to the Closing Auction Session (CAS) framework, derivatives settlement methodology and market timings. The regulator has offered two options for calculating expiry-day settlement prices and proposed changes aimed at improving liquidity, transparency and price discovery.
The proposals come after the CAS, introduced on August 3, 2026, was followed by sharp market movements around some derivatives expiry sessions. SEBI is now seeking public comments on the proposed changes until October 3, 2026.
What has SEBI proposed for the Closing Auction Session?
SEBI's September 12 consultation paper proposes a review of certain aspects of CAS, market timings and settlement methodologies for derivative contracts.
The regulator is not proposing to scrap the Closing Auction Session. Instead, the consultation paper seeks to refine how CAS works and how its closing prices interact with the derivatives market.
The existing CAS applies to stocks in the equity cash segment on which derivative contracts are available. On NSE, the current CAS operates as a separate 20-minute session from 3:15 pm to 3:35 pm.
Why is SEBI reviewing the CAS framework?
The Closing Auction Session was introduced to strengthen the process used to determine closing prices of eligible stocks. The objective was to make end-of-day price discovery more transparent and robust.
However, the interaction between CAS and derivatives settlement has attracted attention, particularly around expiry days. Reuters reported that the regulator's review followed sharp swings in derivatives markets after the new system was introduced.
The proposed changes therefore focus on the settlement-price methodology, information displayed during the auction, order cancellation, market timings and the transition between trading sessions.
What are the two options for derivatives settlement prices?
One of the biggest proposals concerns how the settlement price of index and stock derivatives should be calculated on expiry days.
SEBI has proposed two alternatives:
| Option | How settlement price would be calculated | Proposed approach |
|---|---|---|
| Option 1 | Combines the final 30 minutes of continuous trading with the 10-minute CAS | Blended VWAP |
| Option 2 | Uses only the final 30 minutes of continuous trading | CAS excluded for at least one year |
Under the first option, trades from the final 30 minutes of the Continuous Trading Session (CTS) would be combined with trades from the 10-minute CAS to determine a blended settlement price.
The second option would temporarily separate derivatives settlement from CAS by continuing to use the last 30 minutes of normal trading. Reuters reported that this option would apply for at least one year before CAS-based inputs could potentially be considered again.
What is the blended VWAP proposal?
VWAP, or Volume Weighted Average Price, gives greater weight to prices at which larger trading volumes take place.
SEBI's first proposed method would therefore combine trading activity from two parts of the market close: the final 30 minutes of normal trading and the CAS period.
The idea is to make the settlement price reflect a broader pool of trading activity instead of relying exclusively on the auction or excluding it altogether.
Will the indicative index value be removed during CAS?
Yes. SEBI has proposed stopping the dissemination of the indicative index value during the Closing Auction Session.
The indicative index value is derived from indicative information during the auction rather than representing a final executed index price. SEBI's proposal seeks to prevent this figure from being interpreted as an actual closing level.
However, the regulator has proposed continuing to disseminate the indicative equilibrium price for individual stocks during CAS.
What changes are proposed for market timings?
SEBI has also proposed alternative schedules for the closing auction and derivatives trading.
One proposed structure would allow CAS-eligible stocks to trade until 3:30 pm, followed by a CAS from 3:31 pm to 3:40 pm, with F&O trading continuing until 3:45 pm.
The other option would end stock trading at 3:15 pm, run the CAS from 3:15 pm to 3:25 pm, and end F&O trading at 3:30 pm.
These are alternatives under consultation, not final market timings.
What happens to the CAS transition period?
SEBI has proposed reducing the transition period between continuous trading and the Closing Auction Session.
The current transition period is five minutes. The proposal would reduce it to one minute.
A shorter transition could make the shift between regular trading and auction trading more seamless and reduce the time during which market participants have to wait before the next phase begins. [NEEDS SOURCE]
Will the post-CAS F&O trading window change?
SEBI has proposed reducing the post-CAS derivatives trading window from 10 minutes to five minutes.
The change is part of the broader attempt to align the closing auction process with the derivatives market and reduce the gap between the cash-market closing process and F&O activity.
What is SEBI proposing for limit-order cancellations?
Another important proposal concerns cancellation of limit orders during CAS.
SEBI has proposed that limit orders placed beyond 1% above or below the reference price should not be allowed to be cancelled once submitted during the auction.
Instead, such orders could be modified only in a way that improves their price. The proposal is intended to reduce the scope for order behaviour that could interfere with price discovery during the auction.
What happens to iceberg orders?
SEBI has also proposed allowing unexecuted iceberg orders to move into the Closing Auction Session as regular, fully disclosed limit orders.
Iceberg orders are designed to display only part of a larger order to the market. Bringing an unexecuted order into CAS in fully disclosed form could increase the amount of visible liquidity available during the auction.
What are the seven major changes in simple terms?
For investors and traders trying to understand the proposal quickly, the main changes are:
- Two settlement-price options: SEBI is considering either a blended CTS-CAS VWAP or temporarily retaining the CTS-only method.
- No indicative index value: The indicative index value would no longer be displayed during CAS.
- New market-timing options: SEBI has proposed two alternative schedules for stock, CAS and F&O trading.
- One-minute transition: The current five-minute transition could be reduced to one minute.
- Five-minute post-CAS F&O window: The derivatives trading period after CAS could be shortened from 10 minutes to five.
- Restrictions on order cancellation: Certain limit orders beyond a ±1% range from the reference price could not be cancelled after submission.
- Iceberg-order treatment: Unexecuted iceberg orders could enter CAS as fully disclosed limit orders.
SEBI's stated objective is to improve liquidity, transparency and price discovery while addressing concerns that emerged after CAS was introduced.
Does this mean SEBI is scrapping the Closing Auction Session?
No. The current proposal should not be interpreted as a rollback of CAS.
The regulator is reviewing and modifying parts of the framework, particularly its interaction with derivatives settlement. Reuters also reported that the proposed changes are aimed at refining CAS rather than abandoning it.
That distinction matters because the Closing Auction Session itself was introduced to improve the process of determining closing prices for eligible securities.
What does the proposal mean for retail investors?
For long-term investors who simply buy and hold stocks, the proposed changes may have limited day-to-day impact.
The more immediate relevance is for active traders, particularly those trading derivatives around expiry and market participants who closely track the closing price of eligible stocks.
If SEBI changes the settlement methodology, the price used for derivatives settlement on expiry days could differ from what traders would have expected under the current framework. However, the final methodology has not yet been decided.
When will the new SEBI CAS rules come into effect?
The proposals are currently at the consultation stage.
SEBI has invited public comments until October 3, 2026. The regulator will consider stakeholder feedback before deciding what changes, if any, should be implemented.
Therefore, investors should not treat the proposed timings or settlement formulas as final rules yet.
What is the current Closing Auction Session timing?
Under the existing NSE framework, CAS is a 20-minute session running from 3:15 pm to 3:35 pm for applicable securities.
The current structure includes a reference-price calculation period, order-entry phases and order matching/trade confirmation. The reference price is calculated using VWAP of trades between 3:00 pm and 3:15 pm, while the CAS has a ±3% price band from the reference price.
This is important because SEBI's new consultation proposes different timings and settlement approaches, but those proposals should not be confused with the rules currently in force.
Why does the CAS matter for the stock market?
The closing price of a stock is important beyond simply showing where trading ended.
Closing prices can feed into valuations, portfolio reporting, index calculations and, in relevant cases, derivatives settlement. That makes the mechanism used to determine the closing price particularly important on expiry days.
SEBI's latest consultation is therefore an attempt to address the interaction between cash-market price discovery and derivatives activity around the market close.
What should investors watch next?
The most important near-term development is the end of SEBI's consultation period on October 3, 2026.
After stakeholder feedback is reviewed, the regulator could retain, modify or reject parts of the proposed framework. Until a final decision and implementation timeline are announced, traders should continue to distinguish between the existing CAS rules and the proposed changes.
Frequently Asked Questions
What is the Closing Auction Session?
The Closing Auction Session is a separate market session used to determine the closing price of eligible stocks through an auction-based price-discovery process.
When was CAS introduced?
The current Closing Auction Session framework came into effect on August 3, 2026 for applicable securities.
What are SEBI's two proposed settlement methods?
SEBI is considering a blended method combining the final 30 minutes of continuous trading with CAS, or continuing with the final 30-minute continuous-trading VWAP without CAS for at least one year.
When is the deadline for comments on SEBI's CAS proposal?
SEBI has invited public comments on the consultation paper until October 3, 2026.